Three Years of Hell to Become the Devil: Netflix: In Other Lawsuit Related News

Two good friends from England visited me this weekend, and over a (proper-sized) pint at a good Irish pub, we ended up discussing what this "law" thing I'm studying is. (I keep my old friends up to date on what's happening here, and they'd been reading about this 'clerkship' stuff, something called the MPRE, and a host of other strange and nonsensical terms.) The most difficult explanation--made slightly more difficult by the fact that we mentioned it during the second round of drinks--was probably the strange American tradition of the class action.

We Americans tend to take the class action lawsuit (and class action lawyers) for granted, but they don't exist in much of the rest of the world. The idea of randomly being involved in a lawsuit that you don't know anything about, when you didn't really have a complaint against the company to begin with, seems a bit... well, odd. And I have to admit, even after two years of legal training and quite a bit of study, I'm still a bit frustrated whenever I open up my mailbox or glance in my email to find that I've won the $2.57 American Legal Lottery.

Such a thing happened this evening whilst I was reading for Bankruptcy. I looked from my textbook to find that I'd been visited by the Netflix Fairy in the form of Frank Chavez v. Netflix, Inc.. What's the rumpus?

You are receiving this notice because you were a paid Netflix member before January 15, 2005. Under a proposed class action settlement, you may be eligible to receive a free benefit from Netflix.

A class action lawsuit entitled Chavez v. Netflix, Inc. was filed in San Francisco Superior Court (case number CGC-04-434884) on September 23, 2004. The lawsuit alleges that Netflix failed to provide "unlimited" DVD rentals and "one day delivery" as promised in its marketing materials. Netflix has denied any wrongdoing or liability. The parties have reached a settlement that they believe is in the best interests of the company and its subscribers.

I like Netflix. They provide a groovy little service through a reasonable web interface, and their impersonal online help means that I never had to deal with the legendarily rude and snobbish counter staff at Kim's Mediapolis when I want to get a film. If they've not provided me with "unlimited" movies, it's only because I don't turn them around often enough, and given that they send things through the U.S. Post, I'd not have expected "one-day delivery" if I'd ever seen it promised. I certainly can't remember that. (Update 1)

In short, I've got no beef with my Netflixy friends. And yet I'm going to be getting a bump up of one class to my membership for a month so they can mollify me for an injury of which I was wholly unaware. In the meantime, two San Francisco lawyers are going to be getting (up to) a fat $2.5 million paycheck from the settlement, and Mr. Chavez, the noble knight who brought this foolishness on my behalf, will get a $2,000 Don Quixote fee. Such settlement money won't go into, say, buying more movies for me to rent, making nifty software that will in turn be converted to niftier plugins for blogs, or indeed any improvement that will make my life demonstrably happier. If Netflix caused anything near a $2,000 injury to Mr. Chavez, I want to know what he was doing with those DVDs.

As a satisfied Netflix customer, Mr. Chavez and his legal eagles have stripped my pocket in my own name.

There are instructions in the settlement agreement for objecting. I don't think it's possible, and I certainly don't have the time to write out such a request, but wouldn't it be wonderful if we could write to Judge Mellon, tell him that we're generally satisfied with our service and not feeling all that put upon, really, and could he please reduce the fees paid out to the plaintiff's lawyers on our behalf?

(Actually, looking around the web on this issue, it appears that some folks aren't that happy at all about Netflix. The lawsuit seems to be over whether the company "throttled" their heavy users, i.e. didn't send them their movies fast enough. Me, I don't know where I'd find enough time to watch all the movies required to get "throttled." Perhaps someone is getting hurt here, but (a) the complaint is certainly not explained in the settlement letters, and (b) I'm certainly not one of those folks. Indeed, if the settlement has accomplished anything, it seems to be a transfer of benefits from moderate to heavy Netflix users, with $2.8 million sucked out by lawyers for the benefit of none and a $2,000 cherry on top for Mr. Chavez. With victories like this, thank God there aren't more battles to win.)

Update 1: Hmm. Looking online, there seems to have been ads promising one day delivery. Fair enough for that claim, then. For clarity, I should point out that I mentioned not being able to remember such a promise not because I didn't believe it had occurred (it is in the settlement, after all), but because I'd never made it a reason for subscribing.

Comments

I agree with you about the absurdity of some class actions, but they do serve a noble purpose. When a firm screws a lot of people only a little (for, say, $2.57), its big misdeed gets felt only as a small misdeed. No individual will bother to sue over such small change, so there's no effective civil deterrent. Hence, the class action.

Posted by: Carey | November 1, 2005 10:56 PM

I understand the justification for class actions. If nothing else, I've sat through Civil Procedure, where eager young lawyerlings are taught the goods and the bads of the system. But I don't buy the nobility schtick. Take the instant case. The sting in Chavez won't be reflected in anything that makes the "wounded" parties whole. Sure, Netflix may bump me up a grade, but I (like many if not most users) probably won't adjust my consumption for the sake of their "benefit." (And if I do, they've just gained an extra $6/month from me in usage fees when I decide to keep the service because we find out it better suits our needs.) At the very best, we Netflix users will salve our wounds with . . . a court-ordered marketing promotion! No, the sting in the suit comes from the legal fees, which are paid without anyone having to admit wrongdoing. Netflix can still "throttle," it may just make its Terms of Use (you know, that form contract the reading of which is at best a legal fiction) a bit more explicit about the practice. The upshot is still that heavy users will leave--as they probably should if they can get better value elsewhere--while almost everyone else won't notice any change from the lawsuit. The company is lacking $2.5 million for R&D and development (or just profit), which is $2.5 million dollars that will go into a couple of flash cars for the attorneys and a down payment on the next fleecing of a productive firm. In the meantime, for all the money spent, we consumers and voters get neither a record, a precedent, or even a kiss and a promise to call. While the ideal class action you describe may be as blue-blooded as they come, every slimy settlement that's crawled into my mailbox has looked like a slug dressed up in ermine. If that's nobility, long live the revolution.

Posted by: Anthony | November 2, 2005 2:06 AM

You missed the real point of this settlement, though Anthony alludes to it. According to the email I just received "After the benefit period ends, the new or upgraded level of service will continue automatically (following an email reminder) and you will be billed accordingly, unless you cancel or modify your subscription. You can cancel or modify your subscription at any time." In other words, this gives Netflix an opportunity to bump everyones class of membership up, and charge them accordingly, before the customers get around to modifying their membership. This is a perfect example of a settlement that actually is in the company's interested and also benefits the lawyers. While I might believe that it provides a deterrant value it does that through a transfer from Netflix to lawyers--not by compensating those who suffered.

Posted by: Debbie | November 2, 2005 8:04 AM

This post reminded me of a time when I bought some orange juice from the grocery store and it had gone off (the date had been mismarked or something). I took it back, and asked for my money back. Instead, they offered to give me more of the same gross oj.

Posted by: Gwen | November 2, 2005 12:27 PM

Anthony, your arguments are right on the money, really. Class actions are a costly way to hold corporations accountable. A far more efficient and effective way to discipline corporations that like to chew on the edges of legality is effective public prosecution. So let's have three cheers for Eliot Spitzer!

Posted by: Carey | November 2, 2005 3:16 PM

Sometimes you can get cash money -- just make sure you're in on the right class actions.

Posted by: PG | November 2, 2005 8:35 PM

Might I direct you to a site I set up today: http://www.NetflixSettlementSucks.com I�ve already gotten a couple of enquiries from media, and I intend to make the site as visible as I can to members of the class. I am, understandably I hope, livid.

Posted by: Christopher Ambler | November 2, 2005 10:12 PM

It seems to me that this was just another case of a glutton at an "all you can eat" salad bar trying to get attention, make a nuisance of himself, and get free money all at the same time, and to hell with how it affects everyone (anyone) else. And a lot of the "see, it's only going to help Netflix! nobody cares about the little guy!" garbage is misdirected rage about big companies who are actually screwing most or all of their customers as a matter of daily business. A factor worth considering is that at least a few of the people whose usage would trigger "throttling" are likely engaging in piracy or some other use for profit. Netflix is the rare good business; based on a well-conceived idea (see more on this here), they provide excellent service and selection for good value, they've thrived despite perpetual death knell predictions by supposed stock market experts, and no competitors have been able/willing to match their said service and value. They are doing what few other companies are bothering to do anymore; looking for a consumer desire and fulfilling it. They're not predators, and what 'sucks' is how easy it is to make trouble for a smart enterprise by declaring one's right to be greedy. One imagines Netflix didn't fully anticipate this type of abuse and yes, they should have immediately created and documented reasonable limits on their subscription plans (say 3-discs-at-a-time, up to 30 per month). Personally I think the temporary upgrade offer is appropriate "reparation", and they do make clear what is happening and that those who wish to take advantage of it must change their subscription selection, which would be their responsibility. It's going to cost the company plenty to have to coordinate all the upgrade-takers and one-monthers. It is legal for this Chavez idiot and his lawyers to do what they're doing, and I would certainly rather there be some kind of avenue for consumer complaint than not. But this Chavez is no hero, the case stinks, and people would do better to spend their time getting lathered up over actual and habitual consumer evisceration, such as by the pharmaceutical companies. Legal Folk... if this settlement is voided due to opting out, would this not eventually result in more Expensive Nonsense, therefore more big bucks to attorneys and more cost to Netflix, which will eventually result in higher fees to all subscribers? (incidentally, I'm not a Netflix employee or stockholder. I'm a longtime subscriber who thinks Netflix is a great idea, and I wish more companies were like them.)

Posted by: spudchick | November 3, 2005 10:18 AM

A far more efficient and effective way to discipline corporations that like to chew on the edges of legality is effective public prosecution. And here I thought that the market "disciplined" corporations in the time-honored way: the kind of folks who would complain about this would just cancel their subscription and go on their merry way, in the meantime inflicting damage upon Netflix profits. But I suppose that isn't "punishment" enough.

Posted by: A. Rickey | November 3, 2005 11:22 AM

This is the kind of class-action suit that gives an important too a bad name. this is so ludicrous, i suspect something even deeper...connected to Blockbuster and Walmart who are openly trying to put Netflix out of business. i, too, think Netflix is the niftiest little business, second only to zappos.com, and i've been wildly happy with the service, except that too many of the dvds need to washed and cajoled into playing well--because, i assume, people mishandle them. and i am neither an employee or stockholder of netflix.

Posted by: diane | November 3, 2005 2:18 PM

Posted by: cc | November 3, 2005 3:11 PM

For all of you complaining about the settlement, the best avenue is to simply ignore the notice of settlement. This is an opt-in settlement, so no one is being forced to participate. Furthermore, the attorney's fees are likely pegged to the number of opt-ins. cc/others, I am curious to hear what would happen if NetflixSettlementSucks.com succeeds in getting more than 5% of customers to opt out (however unlikely this may be). According to the site, this could/would result in a voided settlement. Is that a certainty, or at the discretion of the judge; and if it were voided, what would that mean? Would it be the end of the affair, or could the suit be brought again? Would the voiding of the settlement be more or less desirable for Netflix, from a legal standpoint? I'm not a lawyer or law student (likely obvious), so I'm trying to grasp the implications of encouraging Netflix customers to actively opt out of the settlement. Any clarification from your educated ranks would be much appreciated.

Posted by: spudchick | November 3, 2005 7:31 PM

It is *not* an opt-in settlement. You have to opt in to get the benefit of the settlement, but if you do nothing, your claim gets extinguished. In a true opt-in settlement, if you do nothing, you can sue on the matter yourself later.

Posted by: Heidi | November 5, 2005 3:38 PM

Thanks for pointing that out, Heidi. I've been offline for the last few days...

Posted by: A. Rickey | November 5, 2005 11:01 PM